The Rosenbaum Law Firm P.C. Blog

My latest article for JDSupra.com can be found here.

Life goes fast. Feels about 10 years ago that I started as an ERISA attorney in practice and that was almost 25 years ago. It’s 2023 and before you know it, it will be 2024.

It is time for you to realize that the longtime, part-time exclusion will become law, where employees with 500 hours of service within 3 consecutive years of employment will be eligible to defer in a 401(k) plan. The problem is when you deal with split provisions, it will lead to administrative mistakes. In addition, if you forget to get these employees involved in the plan, you may have missed deferral opportunities and corrective contributions.

So I think it makes sense to identify who will be eligible right off the bat in 2024. Doesn’t hurt to prepare ahead of time.

I think the Solo 401(k) plan is one of the great treats for sole proprietors. I have been using it for years. The problem is that there is so little help, that sponsors of these plans fall into a trap when they forget that there is a Form 5500 to file. It doesn’t help that most solo 401(k) plan providers get zero help from the custodians they work with.

Plans with no employees still have to file a Form 5500 when plans hit $250,000 in assets or more. When plan sponsors forget the 5500 deadlines, they then compound their error by filing the Form late, without using the Department of Labor’s self-correction program for late filings. Then they get a bill from the IRS for tens of thousands of penalties.

If you have a solo or know those that do, be aware of those Form 5500 obligations.

Call me crazy, but I think less is more. If you have a 401(k) plan and another plan (usually a defined benefit or cash balance plan), there may be reasons why you would want multiple third-party administrators (TPAs). Speaking from experience, it’s difficult to place two plans with two different TPAs.

Often, there are communication issues and that is problematic because the two TPAs have to coordinate and work together. Recently, I’ve had to represent a plan sponsor because one TPA wouldn’t talk to the other and when there are potential compliance pitfalls, that puts the plan sponsor at risk for a business tax audit.

The Plan Sponsor Council of America’s (PSCA)65th Annual Survey of 401(k) and Profit Sharing Plans showed record savings in retirement plans.

In 2021, participant and employer contribution rates combined to produce an average savings rate of 13.9% of pay, which apparently is an all-time high.

2021 also had the highest employer contribution rate in that survey’s history, at 5.6% of pay.

Thirteen percent of employers increased their profit-sharing contributions in 2021, while 5% percent increased their match.

Plan participation of eligible employees rose to 89.2% in 2021, up from 88.5% in 2020. The average deferral also increased at 8.3% of pay, up from 8% in 2020.

My newsletter for retirement plan providers can be be found here.

My latest article for JDDSupra.com can be found here.

My latest article for JDSupra.com can be found here.

I was interviewed recently by a 401(k)-centric website about smaller plans. When I first started in 1998, there was a tremendous bias from a small start-up plan. So many plan providers didn’t want the business and these smaller plans were burdened with working with insurance companies with high, undisclosed fees.

Thanks to tech-based 401(k) plan providers like Vestwell, there is more relief today than in the past. The biggest development has been Pooled Employer Plans (PEPs), which wasn’t an option for small plans because they didn’t exist prior to 2021. While PEPs have been rather too slow to develop, I think they’re a great opportunity for small companies to get lower fees, but more importantly, remove those fiduciary liability issues by delegating them to the Pooled Plan Provider.

I was an associate at a semi-prestigious law firm. I asked the 401(k) trustees to look at our plan. One trustee was the human resources director and the other one was a law firm partner.

The plan didn’t have a financial advisor. The investment options weren’t updated in 10 years. Plan participants weren’t being provided with any investment education, whatsoever. These were glaring problems and I told the trustees what needed to be done. Then they no longer listened to me. They hired an advisor I didn’t recommend and changed the third-party administrator without any input. Years after I left the firm, I learned they had a huge compliance problem, which didn’t make sense for a plan that should have been a safe harbor 401(k).

The plan was a mess and, in my mind, the people responsible for it should have walked the plank. Continuing to have the same bad decision-makers in place, makes zero sense. People who make bad decisions, usually always make bad decisions. If you want to change how you operate, eliminate the people that got you in the mess, first.